SOUTHFIELD, Mich. - Chevrolet Dealer Gordon Stewart's greatest challenge used to be competing against superior Japanese sedans. Now his biggest headache is getting General Motors to build enough Chevy cars to satisfy growing demand.

"The new Spark only lasts a day on my lot," said Stewart, who has four Chevrolet dealerships in Michigan, Florida and Georgia. "I don't think our cars have ever been this good."

Sedans and small cars, once dismissed by Detroit as the loss leaders in their lineups, are suddenly the stars of their showrooms. After losing a generation of car buyers to Japanese automakers such as Toyota, GM, Ford and Chrysler are gaining ground with stylish, efficient models like the Spark subcompact and the Ford Fusion family car.

"Detroit is back in the game," said Kevin Tynan, Bloomberg Industries auto analyst. "Their cars are the most competitive cars and have the best chance since the gas crisis days of the '70s."

The Detroit automakers' share of the U.S. small and midsized car market will grow to 33 percent next year, from 26 percent in 2009, according to researcher LMC Automotive. Sales of the Fusion, with styling evoking Aston Martin, rose 28 percent last month, surpassing Nissan's Altima and trailing Honda's Accord by just 124 cars.

"You don't have to be ashamed to buy an American car anymore," said John Wolkonowicz, an independent auto analyst based in Boston. "The Fusion is a good-looking car, it's distinctive and it looks upscale from what you pay for it."

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The Accord and Toyota Camry rank ninth and 10th among cars traded in for the new Fusion, up from 16th and 19th in 2007 on the previous version of the midsize Ford sedan, according to researcher Edmunds.com.

"In Los Angeles, you see a lot more of the new Ford products than you ever have before," said Jessica Caldwell, an analyst for Edmunds, based in Santa Monica, Calif. "And this is the land of the Prius."

Detroit's car comeback was forged in the recession that almost killed the domestic industry. GM, Ford and Chrysler's weakness in cars was exposed when U.S. gasoline prices peaked at $4.11 a gallon in July 2008, just before the fall of Lehman Brothers set off the recession. As sales dried up for the trucks and sport-utility vehicles Detroit depended upon, the automakers were forced to rethink their indifferent approach to cars.

"Detroit wouldn't be where it is now if it hadn't had that near-death experience," said Jeff Schuster, senior vice president of forecasting at LMC in Troy, Mich. "Sometimes you come out much stronger when you go through something like that."

The automakers also came out much leaner because of the 2009 government-backed bankruptcies of GM and Chrysler and Ford's wrenching restructuring. With far fewer workers and factories, the auto companies lowered their costs and put some of that savings into engineering better cars. That enabled them to charge more for their models and accomplish something that had eluded Detroit for a generation: Make money selling cars.

"Cars were something Detroit ignored for so long because they were losing money selling them at low price points," Tynan said. "They basically invited consumers to buy cars from their competition."

To change that equation at Ford, the company poured billions into overhauling its car lineup, including the Fusion, even as the company was losing billions. Chief Executive Officer Alan Mulally had bet the company by signing off on a $23 billion loan in 2006, using all major assets as collateral.

"We felt a tremendous amount of pressure from the situation that we were in," Raj Nair, Ford's global product development chief, said in an interview. "We were making some very big bets and we weren't making half-hearted bets - it was a total commitment. We knew that to be successful globally, we had to have a successful car side."

Short-sellers are becoming more bullish on Ford's prospects. Short interest in Ford dropped to 15.7 million shares last month, the lowest level since at least 2006, according to data compiled by Markit, a London-based research firm. In a short sale, traders sell borrowed stock on the assumption the price will decline and enable them to profit by buying the shares back at a lower price.

Credit-default swaps that protect investors in GM and Ford debt from nonpayment are also signaling increasing optimism.

Five-year credit default swaps on GM, which fall as investor confidence improves and rise as it deteriorates, have declined 78.4 basis points this year, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. Default swaps on similar-maturity Ford debt have dropped 40.3 basis points in the period.

The declines on the contracts, which pay the buyer face value if a borrower fails to meet its obligations, are the largest among global automakers with market values above $10 billion, data compiled by Bloomberg show. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The shoddy cars the U.S. automakers had offered over the previous three decades cost them the loyalty of the 75 million- member baby boom generation. As that generation aged and became more affluent, they moved up into Toyota's Lexus and BMW's models instead of U.S. luxury brands such as GM's Cadillac and Ford's Lincoln.

Now, baby boomers' children, known as Generation Y, are coming of age as Detroit produces more attractive cars, such as the Chevy Sonic and Chrysler 300, providing the potential to change perceptions, Wolkonowicz said.

"The baby boom generation is the big lover of foreign- branded cars," Wolkonowicz said. "Now Gen Y is moving into the car market - the oldest of them is 35 - and they're much more open-minded."

A generational shift has also gone on inside the automakers. Gone is the group that put all their chips on high- profit, gas-guzzling SUVs and pickups. The new crew has learned from the mistakes.

"The bankruptcy was an important, life-changing event for us," said Klaus Busse, 43, Chrysler Group's head of interior design, who led development of the new Dodge Dart compact car. "It made us better. Now we're coming back up and we will not be the generation to let us go down again."

Chrysler, majority owned by Fiat SpA, gave the Dart features once found in more-costly cars, such as a soft-touch dashboard and touch-screen controls. CEO Sergio Marchionne also has said the Dart will be outfitted with a smoother, fuel- efficient transmission to boost sales.

"Just because you buy a small car doesn't mean you want a cheap car," Busse said. "We're designing small cars with the same passion as we designed SUVs and pickup trucks back in the day."

While Chevy small car buyers in the past may have looked at GM's vehicles simply as a way to get to point A from point B, research finds customers now say they're passionate about the company's cars and say they represent their personalities, Cristi Landy, marketing director for Chevrolet small cars, said in a telephone interview.

"Back in the late '80s, early '90s, the company was trying - how can we succeed in small cars? - because it was a place where we weren't as successful," she said. "We tried a couple different paths, but it seems like we finally got it."

Detroit's car renaissance remains a work in progress. The Dart hasn't met initial sales expectations, nor has the Chevy Malibu, a midsize sedan criticized for bland styling when it came out last year. GM is giving the Malibu a fast facelift that will hit the streets in 2015, Schuster said.

"When there is a miscue, they're fixing it much faster than they would have in the past," Schuster said. "That suggests that they're getting it."

U.S. cars also continue to lag Toyota and Honda in quality rankings. Japanese car brands, led by Toyota's Lexus luxury line, took the top seven spots in Consumer Reports magazine's annual quality rankings last month. The bottom six brands were Chrysler, Dodge, Jeep, Ford, Lincoln and GM's Buick.

"We've got some work to do," Nair said.

At the same time, Detroit's quality shortcomings aren't as acute as they once were, Schuster said.

"The gap between all brands is much smaller," Schuster said. "The biggest challenge is continuing the momentum and not having misses when you launch new vehicles."

The biggest challenge for Chevy dealer Stewart isn't filling his showroom with car buyers, it's filling his lot with inventory.

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